When the Bottom Line is Online

Companies are placing financials online-with a twist.

PUBLIC COMPANIES ARE increasingly putting their
annual reports and other financial information on their Web
sites, where extra room and hyperlinks provide many options.

AS YET, THERE IS LITTLE SEC or other guidance, although
the AICPA auditing standards board has issued an
interpretation on electronic sites for audited data and has
formed a task force.

COMPANIES NEED TO CONSIDER issues of security and
demarcations between SEC-required financial statements and
other information.

EXXON, RAYTHEON, INTEL AND Microsoft are offering features
as simple as hyperlinks to the SEC and as complex as video
clips and real-time stock market quotes.

AT LEAST ONE COMPANY IS offering unaudited statements in
different countries' accounting standards, taking advantage
of the Internet's international nature.

Richard J. Koreto, is a news editor at the
Journal . Mr. Koreto is an employee of the American
Institute of CPAs and his views, as expressed in this article,
do not necessarily reflect the views of the AICPA. Official
positions are determined through certain specific committee
procedures, due process and deliberation.

Corporations have established Web sites to market their
products and services, to offer freebies to potential customers or
just to polish the corporate image. Increasingly, companies are
finding still annual and quarterly reports and filings with the
Securities and Exchange Commission. The Internet gives companies far
more options than print, including plenty of space to add financial
pages and even audio and video clips. Regulatory bodies barely have
begun to address accounting and auditing issues, but many corporations
are pushing the limits right now, bringing generally accepted
accounting principles and generally accepted auditing standards into
the information age. All CPAs, especially those in business and
industry, should be aware of the implications-and the opportunities.

TECHNICAL ISSUES Before CPAs interested in putting their companies' financial
statements online start uploading pages of data, they should consider
the following questions, keeping in mind that the answers may change
in the near future.

"Can a company omit the printed statement altogether if it
puts its statements on its Web site?" The cost savings for a
large company that has to send statements to thousands of
stockholders could be significant. Right now, most public companies,
however, like most stockholders, are not online. SEC spokesman John
Heine told the Journal that "basically, the rules that
apply to paper disclosures apply to electronic disclosure as well.
Companies can offer shareholders the option of receiving required
information online but still must make the paper version
available." A comprehensive SEC report on online disclosures is
on the SEC Web site; go to release no. 33-7233 at http://www.sec.gov/ . (The SEC has
been requiring companies to file certain documents online for public
viewing. For more details, go to
http://www.sec.gov/edaux/wedgar.htm.)

"What additional disclosures can, or should, companies put on
the Web?" Even Fortune 500 companies, with their fat, glossy
annual reports, can't find the room in them to add all the financial
information they would like. But computer memory is cheap, and a Web
site offers an almost unlimited amount of room. Many companies
hyperlink to the SEC site for 10-K and 10-Q filings. Some even have
copied portions of the SEC site to their own sites, so visitors can
view filings without leaving the company's pages. Another popular
feature is a hyperlink to one of several online quotation services,
allowing visitors to check out the price of the company's stock.
It's almost like getting an updated financial statement every 20
minutes. (There are a number of such services; one example is
http://quote.pathfinder.com/money/quote/qc.)

"What is the auditor's responsibility?" Or, from the
company's viewpoint, "What can it expect the auditor to look
at, especially regarding all these additional disclosures?" The
American Institute of CPAs auditing standards board issued an
interpretation to AU section 550 titled "Other Information in
Electronic Sites Containing Audited Financial Statements,"
which says auditors have no responsibility for considering or even
reading online information. However, Practice Alert 97-1 advises
CPAs to consider potential problems: Is the site secure, or can
hackers break in and alter financial information? Has the company
clearly separated financial statements and the auditor's report from
other information so unsophisticated investors are not misled? (This
alert, a brief discussion intended to provide guidance on online
statements, appears in a supplement to the January/February 1997
CPA Letter for AICPA members in public accounting firms.
Members who did not receive this supplement can get a copy from
AICPA Online, the Accountants Forum and the faxback system,
201-938-3787.)

Thomas Ray, AICPA director, audit and attest
standards, told the Journal that the ASB is forming a
task force to address issues related to the electronic
dissemination of audited financial information and other
information attested to.

WHAT SOME COMPANIES HAVE DONE Despite the dearth of guidance, companies are stuffing their
sites full of financial information. As might be expected, technology
companies have some of the most elaborate sites, but they are not the
only ones taking advantage of the Web.

Exxon ( http://www.exxon.com )
has reproduced the cover of its printed annual report on the financial
portion of its Web site. Visitors can get there by following links
from the home page. Current and potential investors can hyperlink
directly to the financial section or to eight other sections,
including a letter to shareholders and operating highlights.
"Financial" links to a detailed table of contents, with over
30 links to different parts of the annual report, such as the report
of independent accountants, notes to consolidated financial statements
and management's discussion and analysis of financial condition and
results of operations. Each page links to other parts of Exxon's site,
giving the company a public relations boost: it's able to repeatedly
display its hyperlink to its statement of environmental concern and
its work in preserving the tiger-its corporate logo-in the wild.

Raytheon ( http://www.raytheon.com ), a
major defense contractor and aviation manufacturer, goes a step
further. Neatly organized on its finance page are quarterly reports,
annual reports and 10-Ks going back to 1992. Visitors can click on a
graph of stock prices for the past 10 years and a table of stock
highs, lows, closes and volume for the past five days. There's even an
investor's e-mail address for any shareholder seeking general
information about the company.

Intel, the computer-chip giant, offers more than financials. It
offers a presentation. Visitors to the financial page will find what
could be, for the novice, a daunting series of questions about modems,
Internet connections and software: Intel displays customized sites,
depending on the sophistication of the hardware and software the
visitor has. If your computer can handle it, you will see video clips
and hear audio clips. Click on icons to investor news, releases on
earnings, stock ticker, SEC filings, a presentation of the annual
stockholders meeting and the annual report, the last item further
divided into eight sections. Intel offers many hyperlinks from the
annual report to product descriptions but flashes an "EXIT"
sign when you are leaving the annual report section. Green arrows
allow readers to flip through the online annual report as they would
the paper version, skipping the extraneous hyperlinks. Intel advises
visitors to use a computer with a Pentium chip, which it manufactures.

Although visitors can reach Microsoft's financial site through its
home page, it is much quicker to go to this huge section directly ( http://www.microsoft.com/msft/
). Animated icons lead to "audio & chats," for
example, where you can hear and see presentations from Microsoft
executives at the 1996 financial analyst meeting and get a transcript
from the most recent shareholder meeting. Potential investors can
download financial information into Excel spreadsheets-Excel being, of
course, a Microsoft product. (The financials page says, "This
page, in addition to providing the latest financial information about
Microsoft, also demonstrates the capabilities of our products.")
Visitors can see SEC filings, the annual report, up-to-the-minute
stock quotes and general stock information. Income statements have
additional hyperlinks, indicated by graph icons, that lead to bar
charts giving more information. Click on "research and
development" or "sales and marketing" for more
information on these figures.

But Microsoft really pushes the GAAP envelope-and takes full
advantage of the Internet's international nature-with international
statements. Microsoft supplies consolidated profit and loss statements
for Canada, France, Germany, Japan and the United Kingdom. Each
statement uses the language and the currency of the country, and is
prepared in accordance with that country's accounting standards. The
statements are clearly marked as "unaudited," but their very
existence on the Web next to Microsoft's audited financial statements,
and the easy way the Internet crosses national boundaries, will no
doubt make online features like this a subject for regulatory action
in the future.

FOR THE FUTURE Michael G. Edwards is an internal auditor for BB&T Bank in
Winston-Salem, North Carolina, and he assists in reviewing his bank's
financial statements before they are made available to the public.
"I think eventually most SEC-mandated public company financial
statements will be online," he told the Journal .
"I think the push toward real-time information will continue
until ticking and tying historical data are a thing of the past. I
foresee statements being available online in real time with the audit
attestation being on the same system that the company uses to produce
and provide the information. Like it or not, I think all auditors
eventually will be information systems auditors."